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Global Malting Barley Report. Analysis of 2007 Barley Harvest and the Implications on Malt Availability, Quality and Costs to the US Craft Brewing Industry. Ian L Ward Brewers Supply Group October 2007. Topics to be discussed. The Global Nature of the Malt Industry Harvests 2007

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Global Malting Barley Report

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    1. Global Malting Barley Report Analysis of 2007 Barley Harvest and the Implications on Malt Availability, Quality and Costs to the US Craft Brewing Industry Ian L Ward Brewers Supply Group October 2007

    2. Topics to be discussed • The Global Nature of the Malt Industry • Harvests 2007 • North America • Europe • Australia • Outlooks • Demands on Grains • Malting Capacity Supply & Demand • Impact to the industry

    3. Global Barley Production & Malt Exports The global barley production in 2006/7 was 134.378 MMT (USDA Estimate) Global Malt Trade in 2006/7 was 4.58 MMT Source: RM International & USDA

    4. The Prelude- 2006 Crop • Major Shortages of Malt Quality Barley in Europe and Australia Source: Euromalt Photograph: Ian Waldie/Getty Images • Europe • Poor Year: Cold early, hot dry Summer, Wet harvest gave rise to pre-sprout damage • 1 Million Metric Tons of Malting Quality Barley Short • Australia • Drought conditions • Disastrous harvest • In place of a typical 9 MMT only 4 MMT harvested

    5. North American Harvest 2006 • Global reduction in barley harvest in 2006 • Poor harvests in Europe & Australia has motivated Far Eastern brewers to favor North American Malsters perceived to be a more reliable supply. • Poor harvest volume in 2006 leaves no carry-over stocks into 2007

    6. Evolution of Barley Pricing 2006 Source: Emalt

    7. Harvest 2007 Headlines • Barley harvest in Northern Hemisphere completed • US Production 4.86 MMT 18% Higher than in 2006, overall quality variable at best • US 6 row production excellent but 2 row production average yield and variable quality • EU harvested a small crop of variable quality with no carry-over stocks from 2006 • Canadian crop of greater volume than in 2006 but higher protein and low plumps • Australian output is expected to be poor again this year estimated at 5 MMT

    8. Western USA – Barley Yields • United States Overall • Production estimated at 212 million bushels (4.42 MMT) • 18% higher than 2006 • The last three years of production on an annual crop basis have been lower than any year from 1936 to 2004 • North Dakota • Production estimated at 77.8 million bushels (1.62 MMT) • 60% higher than 2006 • Acreage and yield increases from 2006 • Montana • Production estimated at 31.7 million bushels (0.66 MMT) • 2% higher than 2006 • Acreage higher but yield lower compared with 2006 • Yield at 44 bu/acre average vs. 48 bu/acre average last 15 years • Harvested acreage has been less than 1 million acres each of last 8 years • Before 2000 harvested acreage had not been less than 1 million since 1953 • Idaho • Production estimated at 44.0 million bushels (0.92 MMT) • 3% higher than 2006 • Acreage higher but yield lower compared with 2006 • Yield at 80 bu/acre average vs. 79 bu/acre average last 15 years • Other than last year harvested acreage lowest since 1968

    9. Western USA - Quality • Quality • Six/row areas • Overall quality is good • Nice sizing with DON in some areas but should not be a big issue • Sprout damage in some areas due to wet conditions at harvest affecting malting quality • Appearance much darker than last year • Proteins on the low side • Two/row areas • Variable quality crop • Dry-land areas for the most part are low plump and high protein due to less than ideal growing conditions • As low as 50 plump and 15 protein is moving as malting barley for blending • High plump and low protein material on the open market is hard to come by and is trading at a hearty premium • The general feeling is that there is very little open market high quality barley available from the 2007 crop

    10. Western Canada - Barley Yields • Total Barley production estimated at 11.822 MMT vs 10.004 MMT in 2006 (18% higher) • Planting and harvests delayed due to wet and cold weather

    11. Western Canada Quality Barley Crop Quality by Geographic Region • Southern Excessive protein and extremely low sizing. • Central Moderate protein with acceptable sizing. • Discolored and some pre-sprout damage. • Northern Low protein, good sizing, stained, sprouted. • Overall No surplus of malting quality barley in Canada. Expected Malt Quality from 2007 Crop • Protein up both total and soluble • Sizing down • Extracts reduced • Dark in Appearance • May see an increase in β-glucan if germination weakens over the season

    12. Crop 2007 – Seeding Conditions Excessive rain in Fall 2006 delayed seeding by 3-4 weeks in Central AB and Northwest Saskatchewan Conditions good in all other areas.

    13. Crop 2007 – Growing Conditions Excessive moisture delays seeding & maturity in Central and Northern Alberta. Normal moisture pattern in West Central Saskatchewan

    14. Crop 2007 – Growing Conditions Temperatures well above average in all areas during July. Extremely dry during July in Southern Saskatchewan & Alberta.

    15. Crop 2007 Varieties and Trends

    16. Canadian Wheat Board • Canadian government attempted change through regulation on August 1, 2007 • Judge rules that changes must be made in Parliament • Government continues to attempt changes to CWB monopoly • Appealing judge’s ruling that denied changes • Earliest change would be August 1, 2008 • Remains single desk seller of barley for export and human consumption • Continues to price pool – poor price discovery for farmers • Feed prices approaching indicated returns for malting barley

    17. Europe – Barley Yields and Quality • Climate related poor yields observed in Europe for 2nd year running 56.301 MMT vs. 56.382 in 2006 • Highly unusual weather in Northern Europe dashed hopes of a recovery in barley stocks • Poor output in Northern Europe, better than expected in Scandinavia • Low yields and grower withholding of barley propelled barley pricing to record highs • Lower bushel weights reported • Higher proteins and lower plumps expected • Last 2 weeks have seen markets calm and retreat a little • Crop 2008 futures of €280 per MT is expected to attract seeding

    18. Europe Growing Conditions 2007 • Europe has had the driest and warmest April in living memory • A dip in the Jet stream known as a Rossby Wave brought Icelandic conditions to Northern Europe all Summer. • In contrast Southern Europe had very hot and dry conditions • July saw the worst flooding in 60 years in the UK April May June 1.8 2.2 2.6  3.0  3.4  3.8  4.2  4.6 5.0 very wet                               very dry July August September Source: European Union Directorate General JRC

    19. Evolution of Barley Pricing 2007 Source: Emalt

    20. EU Supply & Demand Matrix 2007 Source: H M Gauger

    21. Australia • Harvest Underway • Although drought conditions were relieved somewhat with early rains these conditions did not continue throughout the growing season • Optimistic outlooks of yields of 9 MMT have been reduced to 5 MMT • Too early to assess malting quality and selection rates but yields are only expected to cover domestic requirement and exports to high value markets

    22. Future Demands on Global Acreage • Biofuels: Ethanol & Bio-Diesel • Government programs in EU and USA continue to promote growth. • Wheat Milling & Oils for food • Improving economies increases demand • Feed Grains • Increasing demand for meat adds to growth in demand for feed grains

    23. Effect of Bio-fuel Production • As production of bio-fuels goes up year end stocks have gone down, when viewing these charts consider also population increase since 1976! • Malting Barley has a new competitor for acreage. • In a free market, fiscal return will have to promote cultivation

    24. Barley Markets - Ending Stocks

    25. Crop 2007 – Crops and Trends

    26. Global Changes in Malt Capacity Beer Production 197 mil hl Malt demand 2.2 mil mt Capacity investment shortfall 1.1mil mt Source: MaltEurop March 2007 Presentation

    27. Global Growth in Malt Demand Source: MaltEurop March 2007 Presentation

    28. Conclusions Cost of Malt up sharply from previous years • Poor global barley yields for 2 consecutive harvests has resulted in barley shortage • Poor return for growers has resulted in a flight from malting barley in favor of alternative crops • Poor return to malsters has led to lack of investment in malt plants

    29. Outlook • Price corrections are necessary and long overdue to safeguard supply • Bio-fuel crops are in their infancy the potential to reduce acreage further is huge • Climate change has the potential to produce more poor harvests. • Barley prices have eased somewhat in the last couple of weeks. Recent price corrections may be sufficient • Conversion of plant wastes using new technology to fuel may take pressure off seed crops • 2008 may produce a good harvest in Europe alleviating ending stocks issue Closer co-operation between brewers, malsters and growers is essential to provide fair value along the entire supply chain in order to safeguard the raw materials essential for brewing.